U2, AOS 3 - Lesson 1 - NCA's Flashcards
A non-current asset is…
A non-current asset is a present economic resource controlled by the entity (as a result of past events) that is not held for resale and is reasonably expected to be used for more than the next 12 months after the end of the reporting period.
Historical cost is…
…the cost of the asset when purchased.
Fair value is…
Fair value → the price received when selling an asset if it was sold at the time it was acquired by the business.
Does fair value uphold verifiability?
No, fair value will be an estimate and not supported by a source document as it was not purchased. Fair value mostly used when owner contributes an asset, and a Memo would be issued.
Assets contributed by the owner should be recorded…
In the asset register
The asset register contains what info about the asset?
Date of purchase
Description of the asset
Serial number(s)
Acquisition cost (fancy way of saying purchase price)
Estimated useful life
Rate of depreciation
Usage for relevant assets such as kilometres travelled for vehicles, units produced for machinery.
Disposal details – date the non-current asset was sold and for how much
What does ‘finite’ mean?
Most non-current assets have a limited (or finite) life and wear out over time or the potential future economic benefit is consumed.
Finite is the opposite of infinite (endless).
Depreciation expense is…
…the part of the future economic benefit of a non-current asset that has been consumed in the current reporting period
Two methods of depreciation are…
Straight line
Reducing balance
Residual value is…
… the estimated value of the non-current asset at the end of its useful life.
Useful life is…
…the estimated period of time for which the non-current asset will be used (by the current entity) to earn/generate revenue. (usually measured in years)
SL depreciation is calculated by…
HC - RV / Life
How would depreciation expense be reported in the Income Statement?
Reported as “Depreciation Expense - ASSET NAME” in the “Other Expenses” section
How would depreciation expense be reported in the Balance Sheet?
The depreciation expense will decrease owner’s equity via net profit.
In addition, it decreases the economic benefit that remains in the non-current asset, to reflect this Accumulated depreciation of name of asset is recorded in the Balance Sheet and is classified as a Negative Asset.
